U.S. Payroll Increase Is Disappointing While Jobless Rate Increases

Recent labor market improvement backpedaled last month. Nonfarm payrolls rose just 39,000 after an upwardly revised 172,000 October increase. The rise disappointed Consensus forecasts for a 142,000 gain. Also disappointing was the rise in the unemployment rate to 9.8%, its highest since April. Accompanying the weak headline figures were sequential, discouraging details. The breadth of gain in payrolls fell to just 52% of industries, the lowest of the current expansion. Average hourly earnings were unchanged m/m and the annual gain of 2.1% matched its weakest since 2004. 

Within the establishment survey, indications of weaker hiring were broad-based. The weakest was the slight 65,000 worker increase in private service sector hiring. The gain was the smallest since June. It reflected broadly weaker increases across industries as well as monthly declines in finance (-1.2% y/y) and retail trade (+0.4% y/y). Showing the disinterest in hiring full-timers, temporary help jobs rose by 39,500 (19.2% y/y). Continuing to the downside were factory and construction sector payrolls, though the rates of decline have slowed significantly from their worst. In the public sector, payrolls fell 11,000 led by a decline (-1.8% y/y) in local gov't jobs which continue to fall with lower tax revenues. Federal gov't employment rose just 2,000 (0.1% y/y) as the government continues to face large budget deficits. 

Accompanying the weak payroll figures was the rise to 9.8% in the unemployment rate, as calculated in the household survey. A 9.6% rate had been expected. The increase reflected a 173,000 drop (+0.4% y/y) in employment following a 330,000 October decline. Moreover, a 103,000 increase (0.2%) in the labor force failed to recoup October's drop. The more comprehensive unemployment rate, which includes marginally attached workers and those who work part time but would prefer a full-time job, remained at 17.0%.

The household survey also showed that those unemployed were jobless for a near-record 33.8 weeks, on average. Forty-two percent of individuals have been unemployed for 27 weeks or longer, down just slightly from the May high. That resulted in a 2.2% rise in the number of individuals not in the labor force, with those "not looking because of discouragement over job prospects" up by nearly one-half y/y. Overall, the civilian participation rate of 64.5% was its lowest since 1984.

The figures referenced above are available in Haver's USECON database. Additional detail can be found in the LABOR and in the EMPL databases.

How Do Sudden Large Losses In Wealth Affect Labor Force Participation? from the Federal Reserve Bank of Chicago can be found here.

Factory inventories are growing, with October's up 0.9% (+5.8% from a year ago).  The inventory/shipments ratio ticked up in October to 1.28 from 1.27 in September; it is about the same as a year ago, but higher than last winter when shipments seemed stronger.  Inventories at all three stages of fabrication are rising; the increases in materials & supplies, +4.8% y/y, and work-in-process, +7.7% y/y, suggest that factory managers may believe their demand is moving ahead, so they should rebuild stocks.  But the increase in finished goods, +5.1% y/y, could be associated with the recent moderation in shipments, a less desirable development.

Thus, while there are some signs of improving activity, these continue to look quite uneven and tenuous.

The Manufacturers' Shipments, Inventories and Orders (MSIO) data are available in Haver's USECON database.

For the third consecutive month the U.S. service sector improved. The November Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) rose to 55.0 from 54.3 in October. The latest beat Consensus expectations for a reading of 54.7 and it remained up from a low of 37.2 late in 2008. Since the series' inception in 1997 there has been a 65% correlation between the level of the composite index in the nonmanufacturing sector and the q/q change in real GDP for the services and the construction sectors.

The performance of the components of the ISM Index was mostly positive last month. Only the business activity slipped to 57.0 from its highest level since June. The new orders series rose to its highest since April. Finally, the employment figure increased to the highest level since 2007. Sixteen percent (NSA) of respondents increased hiring while a lessened 11% reported fewer jobs. Since the series' inception in 1997 there has been an 80% correlation between the level of the ISM nonmanufacturing employment index and the m/m change in payroll employment in the service-producing plus the construction industries. The supplier deliveries index increased as delivery speeds slowed a bit.

The pricing power index fell back and reversed half of its October increase. A lessened twenty-eight percent of respondents reported higher prices while 5% reported them lower. At the worst, late in 2008, 41% reported lower prices. Since its inception ten years ago, there has been a 71% correlation between the price index and the q/q change in the GDP services chain price index.

Beginning with the January 2008 Nonmanufacturing Report On Business ®, the composite index is calculated as an indication of overall economic conditions for the non-manufacturing sector. It is a composite index based on the diffusion indices of four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights.

The ISM data are available in Haver's USECON database.